International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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fulfilment value. Depending on the techniques used:
• estimating inputs to the valuation and applying the valuation technique may be
costly and complex; and
• the inputs into the process may be subjective and it may be difficult to verify both
the inputs and the validity of the process itself. Consequently, the measures of
identical assets or liabilities may differ. That would reduce comparability. [CF 6.74].
In many cases, value in use cannot be determined meaningfully for an individual asset
used in combination with other assets. Instead, the value in use is determined for a group
of assets and the result may then need to be allocated to individual assets. This process
can be subjective and arbitrary. In addition, estimates of value in use for an asset may
inadvertently reflect the effect of synergies with other assets in the group. Hence,
determining the value in use of an asset used in combination with other assets can be a
costly process and its complexity and subjectivity reduces verifiability. For these
reasons, value in use may not be a practical measurement basis for regular
remeasurements of such assets. However, it may be useful for occasional
remeasurements of assets, for example, when it is used in an impairment test to
determine whether historical cost is fully recoverable. [CF 6.75].
Using a current cost measurement basis, identical assets acquired or liabilities incurred
at different times are reported in the financial statements at the same amount. This can
enhance comparability, both from period to period for a reporting entity and in a single
period across entities. However, determining current cost can be complex, subjective
and costly. For example, as noted at 9.1.2.B above, it may be necessary to estimate the
current cost of an asset by adjusting the current price of a new asset to reflect the current
age and condition of the asset held by the entity. In addition, because of changes in
technology and changes in business practices, many assets would not be replaced with
identical assets. Thus, a further subjective adjustment to the current price of a new asset
would be required in order to estimate the current cost of an asset equivalent to the
existing asset. Also, splitting changes in current cost carrying amounts between the
current cost of consumption and the effect of changes in prices (see 9.2.2.C above) may
be complex and require arbitrary assumptions. Because of these difficulties, current cost
measures may lack verifiability and understandability. [CF 6.76].
9.3.4
Factors specific to initial measurement
At initial recognition, the cost of an asset acquired, or of a liability incurred, as a
result of an event that is a transaction on market terms is normally similar to its fair
value at that date, unless transaction costs are significant. Nevertheless, even if those
two amounts are similar, it is necessary to describe what measurement basis is used
at initial recognition. If historical cost will be used subsequently, that measurement
basis is also normally appropriate at initial recognition. Similarly, if a current value
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will be used subsequently, it is also normally appropriate at initial recognition. Using
the same measurement basis for initial recognition and subsequent measurement
avoids recognising income or expenses at the time of the first subsequent
measurement solely because of a change in measurement basis (see 9.3 above).
[CF 6.78].
When an entity acquires an asset, or incurs a liability, in exchange for transferring
another asset or liability as a result of a transaction on market terms, the initial measure
of the asset acquired, or the liability incurred, determines whether any income or
expenses arise from the transaction. When an asset or liability is measured at cost, no
income or expenses arise at initial recognition, unless income or expenses arise from
the derecognition of the transferred asset or liability, or unless the asset is impaired or
the liability is onerous. [CF 6.79].
Assets may be acquired, or liabilities may be incurred, as a result of an event that is not
a transaction on market terms. For example:
• the transaction price may be affected by relationships between the parties, or by
financial distress or other duress of one of the parties;
• an asset may be granted to the entity free of charge by a government or donated to
the entity by another party;
• a liability may be imposed by legislation or regulation; or
• a liability to pay compensation or a penalty may arise from an act of wrongdoing.
[CF 6.80].
In such cases, measuring the asset acquired, or the liability incurred, at its historical cost
may not provide a faithful representation of the entity’s assets and liabilities and of any
income or expenses arising from the transaction or other event. Hence, it may be
appropriate to measure the asset acquired, or the liability incurred, at deemed cost, as
noted at 9.1.1 above. Any difference between that deemed cost and any consideration
given or received would be recognised as income or expenses at initial recognition.
[CF 6.81].
When assets are acquired, or liabilities incurred, as a result of an event that is not
a transaction on market terms, all relevant aspects of the transaction or other event
need to be identified and considered. For example, it may be necessary to
recognise other assets, other liabilities, contributions from holders of equity claims
or distributions to holders of equity claims to represent faithfully the substance of
the effect of the transaction or other event on the entity’s financial position
(see 7.1.3 above) and any related effect on the entity’s financial performance.
[CF 6.82].
9.3.5
More than one measurement basis
Sometimes, consideration of the factors described at 9 above may lead to the conclusion
that more than one measurement basis is needed for an asset or liability and for related
income and expenses in order to provide relevant information that faithfully represents
both the entity’s financial position and its financial performance. [CF 6.83].
In most cases, the most understandable way to provide that information is:
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• to use a single measurement basis both for the asset or liability in the statement of
financial position and for related income and expenses in the statement(s) of
financial performance; and
• to provide in the notes additional information applying a different measurement
basis. [CF 6.84].
However, in some cases, that information is more relevant, or results in a more faithful
representation of both the entity’s financial position and its financial performance,
through the use of:
• a current value measurement basis for the asset or liability in the statement of
financial position; and
• a different measurement basis for the related income and expenses in the
statement of profit or loss – as distinct from the statement(s) of financial
performance (see 10.2.3 below).
In selecting those measurement bases, it is necessary to consider the factors discussed
; in 9.3-9.3.4 above. [CF 6.85].
In such cases, the total income or total expenses arising in the period from the change in the
current value of the asset or liability is separated and classified (see 10.2.3 below) so that:
• the statement of profit or loss includes the income or expenses measured applying
the measurement basis selected for that statement; and
• other comprehensive income includes all the remaining income or expenses. As a
result, the accumulated other comprehensive income related to that asset or
liability equals the difference between:
• the carrying amount of the asset or liability in the statement of financial
position; and
• the carrying amount that would have been determined applying the
measurement basis selected for the statement of profit or loss. [CF 6.86].
9.4
Measurement of equity
The total carrying amount of equity (total equity) is not measured directly. It equals the
total of the carrying amounts of all recognised assets less the total of the carrying
amounts of all recognised liabilities. [CF 6.87].
Because general purpose financial statements are not designed to show an entity’s value,
the total carrying amount of equity will not generally equal:
• the aggregate market value of equity claims on the entity;
• the amount that could be raised by selling the entity as a whole on a going concern
basis; or
• the amount that could be raised by selling all of the entity’s assets and settling all
of its liabilities. [CF 6.88].
Although total equity is not measured directly, it may be appropriate to measure directly
the carrying amount of some individual classes of equity and some components of
equity (see 7.4 above). Nevertheless, because total equity is measured as a residual, at
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least one class of equity cannot be measured directly. Similarly, at least one component
of equity cannot be measured directly. [CF 6.89].
Moreover, some initial recognition of equity will be a consequence of the initial
recognition of an asset. Measurement on initial recognition is discussed at 9.3.4 above.
The total carrying amount of an individual class of equity or component of equity is
normally positive, but can be negative in some circumstances. Similarly, total equity is
generally positive, but it can be negative, depending on which assets and liabilities are
recognised and on how they are measured. [CF 6.90].
9.5
Cash-flow-based measurement techniques
When a measure cannot be observed directly, one way to estimate the measure is by
using cash-flow-based measurement techniques. Such techniques are not measurement
bases. They are techniques used in applying a measurement basis. Hence, when using
such a technique, it is necessary to identify which measurement basis is used and the
extent to which the technique reflects the factors applicable to that measurement basis.
For example, if the measurement basis is fair value, the applicable factors are those
described at 9.1.2.A above. [CF 6.91].
Cash-flow-based measurement techniques can be used in applying a modified
measurement basis, for example, fulfilment value modified to exclude the effect of the
possibility that the entity may fail to fulfil a liability (own credit risk). Modifying
measurement bases may sometimes result in information that is more relevant to the
users of financial statements or that may be less costly to produce or to understand.
However, modified measurement bases may also be more difficult for users of financial
statements to understand. [CF 6.92].
Outcome uncertainty (see 9.3.1 above) arises from uncertainties about the amount or
timing of future cash flows. Those uncertainties are important characteristics of assets
and liabilities. When measuring an asset or liability by reference to estimates of
uncertain future cash flows, one factor to consider is possible variations in the estimated
amount or timing of those cash flows (see (b) at 9.1.2.A above). Those variations are
considered in selecting a single amount from within the range of possible cash flows.
The amount selected is itself sometimes the amount of a possible outcome, but this is
not always the case. The amount that provides the most relevant information is usually
one from within the central part of the range (a central estimate). Different central
estimates provide different information. For example:
• the expected value (the probability-weighted average, also known as the statistical
mean) reflects the entire range of outcomes and gives more weight to the outcomes
that are more likely. The expected value is not intended to predict the ultimate inflow
or outflow of cash or other economic benefits arising from that asset or liability;
• the maximum amount that is more likely than not to occur (similar to the statistical
median) indicates that the probability of a subsequent loss is no more than 50% and
that the probability of a subsequent gain is no more than 50%; and
• the most likely outcome (the statistical mode) is the single most likely ultimate
inflow or outflow arising from an asset or liability. [CF 6.93].
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A central estimate depends on estimates of future cash flows and possible variations in
their amounts or timing. It does not capture the price for bearing the uncertainty that
the ultimate outcome may differ from that central estimate (that is, the factor noted
in (d) at 9.1.2.A above). [CF 6.94].
As no central estimate gives complete information about the range of possible
outcomes, users may need information about the range of possible outcomes. [CF 6.95].
10
CHAPTER 7: PRESENTATION AND DISCLOSURE
Financial statements are viewed in the Framework as a communication tool wherein an
entity presents and discloses information about its assets, liabilities, equity, income and
expenses. [CF 7.1].
As discussed at 8.1 above:
• recognised assets, liabilities and equity are depicted in an entity’s statement of
financial position (discussed at 10.2.1 and 10.2.2 below); and
• income and expenses are depicted in an entity’s statement(s) of financial
performance (discussed at 10.2.3 below).
These are structured summaries that are designed to make financial information
comparable and understandable. An important feature of the structures of those
summaries is that the amounts recognised in a statement are included in the totals
and, if applicable, subtotals that link the items recognised in the statement. [CF 5.2].
Typically, the statement of financial position and the statement(s) of financial
performance provide summarised information and more detailed information is
provided in the notes. [CF 7.22].
Effective communication of information in financial statements makes that information
more relevant and contributes to a faithful representation of an entity’s assets, liabilities,
equity, income and expenses. It also enhances the understandability and comparability
of information in financial statements. Effective communication of information in
financial statements requires:
• focusing on presentation and
disclosure objectives and principles rather than
focusing on rules (discussed at 10.1 below);
• classifying information in a manner that groups similar items and separates
dissimilar items (discussed at 10.2 below); and
• aggregating information in such a way that it is not obscured either by unnecessary
detail or by excessive aggregation (discussed at 10.3 below). [CF 7.2].
Just as cost constrains other financial reporting decisions, it also constrains decisions
about presentation and disclosure. Hence, in making decisions about presentation and
disclosure, it is important to consider whether the benefits provided to users of financial
statements by presenting or disclosing particular information are likely to justify the
costs of providing and using that information. [CF 7.3].
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10.1 Presentation and disclosure objectives and principles
To facilitate effective communication of information in financial statements, when
developing presentation and disclosure requirements in standards a balance is
needed between:
• giving entities the flexibility to provide relevant information that faithfully
represents the entity’s assets, liabilities, equity, income and expenses; and
• requiring information that is comparable, both from period to period for a
reporting entity and in a single reporting period across entities. [CF 7.4].
Including presentation and disclosure objectives in standards supports effective
communication in financial statements because such objectives help entities to identify
useful information and to decide how to communicate that information in the most
effective manner. [CF 7.5].
Effective communication in financial statements is also supported by considering the
following principles:
• entity-specific information is more useful than standardised descriptions,
sometimes referred to as ‘boilerplate’; and
• duplication of information in different parts of the financial statements is usually
unnecessary and can make financial statements less understandable. [CF 7.6].
10.2 Classification
Classification is the sorting of assets, liabilities, equity, income or expenses on the basis
of shared characteristics for presentation and disclosure purposes. Such characteristics